Wednesday, February 29, 2012

The magnitude of the micro econ problem in the EU

The EU is likely the worst example of production and growth utterly mired in labour market problems. The auto industry is a case in point. Some auto makers are doing well  - growth in sales, export opportunities and so on. Those that are failing however are doing that  in the grandest of styles.

Production costs are the chief problem. The following numbers provide a microcosm of the French economy, the EU and indeed the West:

  • it is 1,300 euro cheaper to make a Renault Clio in Turkey than in France. The key component in the cost difference is labour – too many workers and each one grossly more expensive than those in Turkey; and,
  • to change that? Just 200,000 euro per worker layoff. The Opel Vauxhall factory – long identified as needing to be closed would cost 8 billion to close.

Clearly unsustainable. It’s that simple – and that complex. Without minute exceptions only western labour markets all look like some version of this and the cost of changing – under present rules look like these as well.

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